7. ***Correct answers will receive 1 mark. Incorrect answers will receive -0.5 mark. An answer left blank will receive 0 marks. So decide carefully before you answer.***

Stagflation can be a result of a supply shock or a demand shock

a.

True

b.

False

9. Suppose that there is an economy with the AD and AS functions below:

AD: P = 3020 - Y SRAS: P = 220 + 3Y LRAS: 1000

Calculate the recessionary or inflationary gap. If it is a recessionary gap, put a negative in front of your answer.

Answer: